Recent changes to Australian charity and NFP remuneration reporting requirements will apply to the 2022 Annual Information Statement reporting period.
ACNC Commissioner Dr Gary Johns highlighted the new disclosure rules regarding the remuneration of ‘key management personnel’ in a recent column.
These rules apply to medium and large registered charities and NFPs in Australia that submit a General Purpose Financial Statement. More details of the key management personnel remuneration parameters are here, along with useful case studies.
From 1 July 2023 the ‘related party transactions’ of charities will be more prominently disclosed in the Annual Information Statement itself.
Which staff does it apply to?
The remuneration disclosure will apply to the NFP’s key management personnel, such as senior staff, management and other responsible people like board members, trustees or committee members, where applicable.
If the NFP engages key management personnel from a separate management entity, such as an accounting service provider, they would report the cost of that key management personnel – calculated by the hour or as a percentage of the single fee, as relevant.
An NFP’s ‘related party’ may include a board member, or a close member of a board member’s family. According to Treasury “The ACNC will provide guidance to assist charities in identifying related parties.”
Why is there a need to disclose remuneration of key management personnel?
Dr Johns points out that although it is right for a charity to pay personnel such as senior staff, and NFP staff members can be highly skilled, experienced and bear responsibility for complex operations, their renumeration should be transparent. “Being transparent about this is crucial in reassuring donors, supporters and the public that a charity is well run and uses its funds responsibly,” says Dr Johns.
Dr Johns adds that improved accountability can actually benefit the NFPs, as it “helps uphold public trust and confidence in the sector and its people”.
What does ‘remuneration’ cover?
The remuneration disclosure will encompass the wages, salaries, annual leave and bonuses of an NFP’s senior staff. It would include their paid long-service leave or a post-employment pension or termination payment.
It also encompasses non-financial items, such as:
- Free or subsidised goods
- Free or subsidised services
- Packaged fringe benefits such as the use of a car
- Medical care fringe benefit
- Housing fringe benefit.
Planning for the new rules
For more background on the issue, the ACNC provides targeted information on its website, such as guides to the renumeration of charity board members. According to the ACNC guides, “Charities should have a clear policy that outlines the manner in which remuneration is determined and the process for its approval.”
If the renumeration issue has raised some questions about your NFP organisation’s financial arrangements for paying responsible persons, discuss them with the Next Dimension team.